Special Report: 11.24.2009

Posted by tED magazine on Monday, November 23, 2009

A STUTTER-STEP OR A STUMBLE?

What do housing starts tell us?

By Joe Salimando

I'm not sure this matters to you; you might say -- "it's housing, and housing's in the toilet" -- and just ignore the monthly reports until they get a lot better. On the other hand, we all live indoors, right? In a building? Some of us own, some of us rent . . . but for most of us, the places we rent ARE owned by someone.

And, economy-wide, housing has been pretty important.

On 11/18, the government emitted this report, which showed housing DOWN instead of up in October. The reporting on this was kind of weird -- it was as if Ben Bernanke had farted loudly (and proudly?) during Congressional testimony, and you heard it, but you couldn't find it in the next day's news reports.

Why? Perhaps because the October housing report was contrary to expectations, or as it was more bad news on housing, or maybe because no one could be sure a dip had happened.

So it disappeared. Kind of. Except that it added another really ugly line to the graphic above (which comes from The Big Picture blog, where Barry Ritholtz offers a lot of neat graphics -- and even better analysis).

 

Looking At Single-Family Starts

I tend to throw out the multi-family starts when I look at the housing picture, based on the fact that MF moves much more erratically than single-family. For one thing, if you start up a 150-unit condo, that adds 150 units to the MF starts number (not one). For another, I'm pretty certain that -- from an electrical point-of-view -- multi-family construction is more akin to commercial than the enterprise of stick-built single-family houses.

Here's what the SF sitch looks like thus far (this is a quick summary of data on p4 of the 11/18 release):

Q4 of 2008 -- 103,200 total SF starts

Q1 of 2009 -- 78,300 SF starts

Q2 of 2009 -- 123,700 SF starts

Q3 of 2009 -- 138,600 SF starts

You see the rising tide, of course (although the rise isn't taking us all that far). That's why October's SF starts (down from 45,300 in September to 40,200) are off-putting.  

Is it a pause? A stumble that doesn't repeat? A nothing of a statistic? A seasonal thing? [the numbers above are NOT seasonally adjusted]

Or was October just a one-time set-back -- attributed by some to the scheduled ending of subsidies for first-time home buyers? [the government has since put the subsidies back in place, and added to them]

 

Why This Is Important

I honestly don't have the answer. But I know that it is going to be important.

One possibility is that, as has been maintained here previously, we're in a Depression. If we're in a Depression, you'd expect to see something like October's numbers. The government will keep trying to revive the dead horse . . . but like an equine who has felt the whip one too many times, the economy's response to increased subsidies and stimuli will dribble off . . . until it ultimately would stop responding.

Think this is a fantasy? No -- there is evidence. The Japanese economy hasn't responded to 20 years of government stimulus. Every once in a while it seems to revive . . . only to fall back. Example of what you would expect to see: According to David Rosenberg, an economist (working for Gluskin Sheff, and oft-quoted in the business media) -- the Japanese stock market has had 400,000 points of rallies in the past 20 years. Yet the Nikkei stock-market average is around 10,000; it was near 40,000 in 1989.

It's also possible that this bad housing number is just a blip. The U.S. economy is powered (or not) by dozens of decisions, made by each of hundreds of millions of people (and even more if you look at a global picture). Our people have made millions upon millions of bad decisions in the 2000s -- and our national government seems to be encouraging many millions to make still more, and still worse, choices.

This is what it's all about, folks. This is NOT a conspiracy theory; it's what a close look at what's going on will tell you. The Federal Reserve Board has driven interest rates to zero, so (among other things) it can chase savers out of "safe" investments and get them to take more risk. The government's "cash for clunkers" program didn't buy cars for people, it provided them with a buy-down on their car downpayments -- on top of which the buyers piled new auto loans. The new-home-buyer tax credit encourages people to each slop on tens of thousands in additional debt (especially if you add that FHA requirement of a downpayment of only 3.5% of the home's value).

Will people stop saving so much, and go back to spending? Will folks afraid of losing a job chase a loan from FHA to buy a house, boosting housing starts and the rest of the economy? Will the government incentivize people to continue to make idiotic decisions -- or will folks wise up?